Santander has been forced to raise the pay of key staff to prevent mass defections to rivals following the loss of its former UK boss, António Horta-Osório, to Lloyds Banking Group.

As codes issued by the Financial Services Authority make it difficult for the Spanish bank to offer retention packages to bankers, Santander has been left with little option but to offer straightforward pay rises to staff tempted by rival offers.

Santander was stunned by the decision of Horta-Osório to quit to join Lloyds at a time when the Spanish bank was hoping its highly regarded executive would lead a partial flotation in London, scheduled for the first half of next year. Horta-Osório has already convinced Juan Colombás, the current executive director of risk at Santander, to be Lloyds's chief risk officer and Santander UK's chief financial officer, Antonio Lorenzo, to be director of Lloyds's wealth and international division.

Sources say that while the two close colleagues of Horta-Osório have agreed to leave, many others have also been considering their positions and been convinced to remain after being offered early salary reviews.

Under Horta-Osório, a Portuguese Anglophile, Santander won the gratitude of the authorities by securing the takeover of Alliance & Leicester just before the banking crisis reached its peak and by agreeing to take on the savers of part-nationalised Bradford & Bingley.

The businesses were incorporated into Santander subsidiary Abbey National and the Spanish bank's red flame logo is now replacing their individual brands on the high street.

Santander's new UK chief executive, Ana Patricia Botín, daughter of the global head of Santander, has already started to bring in her own close lieutenants in a desperate attempt to keep the planned spin-off of Santander's UK operations on track. José María Nus is due to become chief risk officer, transferring from Santander's subsidiary Banesto, while Justo Gómez, deputy chief finance officer of Banesto, will be finance director.

While many contracts signed by bank bosses in the UK contain non-compete clauses making it difficult to hire colleagues away from former employers, it is understood that Santander did not impose similar requirements on its employees. Santander declined to comment.